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We are so close to a glorious summer break, I can almost taste it (yay!). Kids will be home, teachers will be off, and the sun will be out. Summer’s arrival also means many teens, grads, and college students will be starting up their summer jobs. Whether they’re nannying, mowing lawns, spinning pies at the local pizza joint, job shadowing a journeyman electrician, or interning at a law firm, the goal is to gain real life job experience, and of course, make whatever money they can before school starts up again in the fall.

This brings us to an important point. When we think about summer, we usually think about sunscreen, vacations, beach trips, and barbecues. But there’s something we are missing, and it’s… money. Have you equipped your teen with the financial know-how they need to succeed in the real world (and avoid major financial pit falls)? Many parents assume their kids are learning personal finance at high school (or college), but unfortunately, many schools assume the students are learning it at home! It’s a crucial topic that all too often falls through the cracks. And, guess who loses?

As your teen embarks on his/her summer job, you can use this newsletter as a launch pad to build their financial literacy. It’s the perfect time! The principles of wise financial management aren’t that tough to master. You simply need to know the basics and abide by the disciplines and key principles. It pays to emphasize the importance of financial literacy since the stakes are so high. So, a helpful starting approach is to teach them to avoid these eight most common financial mistakes:

failure to set goals and plan/save for major purchases (instead, many load their credit cards with debt, making their items that much more expensive)

failure to set aside an emergency fund for unforeseen expenses (which can lead to panic, more debt, or asking parents to bail them out)

spending more than you earn and failing to budget and monitor expenses (out of all of them, this is probably a top learning priority)

incurring too much debt, including student loans and excessive credit card usage (this can be a slippery slope, and can make buying a new car or home one day very difficult/nearly impossible/far more expensive)

incurring significant fixed expenses relative to your income that can’t be reduced in difficult economic times (e.g., spending too much on housing, cars, etc.)

failure to begin saving and investing for the future as soon as possible (and missing out on the compounding of money over long periods of time)

failure to appreciate how the little things can add up (e.g., eating out versus in, paying up for name brands, owning a dog or cat)

Number 6 is an especially common pitfall among young people when working a summer job. They aren’t used to having a surplus of money in their checking account, so they go on spending sprees and end up saving much less than they could. A good rule to learn, especially at this time of life, is save first, spend on “needs” second, and IF there is money left over, enjoy some “wants.”

These financial pitfalls don’t just apply to teens and young people working their summer job…they apply to everyone! If you are a parent or a teacher, you, too, should review how you’re doing in each of these areas. Are you sticking to your budget? Taking on too much debt? Saving less than you could be? When you practice these same financial best practices, you’ll be even better equipped to talk about financial wellness with the young people in your life. Remember, they’re watching you, so be sure to “walk the talk!” If we can successfully avoid these traps, we’ll ALL be in better financial shape!
Now get out there, get to working, and get to saving! The world (and your bank account) is your oyster.

Promises of getting rich quick are more rampant than ever these days and especially during rising markets. Any of us with a Facebook account probably see at least a dozen invitations a week to some sort of multi-level marketing company that will get you wealthy in no time (“from the comfort of your own cell phone!”). The implication with any sort of “get rich quick” promise or advertisement is that, with little effort or investment, you can become wealthy overnight.

Not so fast. That’s just not how it works!

In life, patience is a virtue. In building wealth, it’s an absolute necessity! It means starting early so time is on your side, investing as much as you can so you have more money working for you, and adopting a globally diversified, long-term strategy so you avoid the pitfalls of market timing. Most studies show that the average investor loses about 2 percent per year to lousy timing decisions, by buying high and selling low! That’s a wealth destroyer you’ll want to avoid.

Bear in mind that a key component in the investment process is TIME, and that’s why I tell people you can never be too young to start! Inexperienced investors often succumb to “get rich quick” schemes and hot stock tips. They buy at the top, after the big gains have already occurred and just before the stock plunges. However, just because a stock or a mutual fund had a great run last year doesn’t mean it will have a repeat performance again this year. In fact, often last year’s biggest winners become this year’s biggest losers because they became overpriced.

Here are some smart tips for investing wisely and growing your wealth patiently. If you’re entirely new to the concept of investing, the stock market, and growing your wealth, I’ll give you some straight forward facts so you can understand the basics:

Regularly invest in a diversified, long-term strategy rather than chase yesterday’s winners or engage in market timing. Begin by establishing an automatic monthly investment program as soon as you receive your first paycheck (even if you’re still in college if you can!). Many large mutual fund companies offer global balanced funds at relatively low fees and minimums. They can arrange for monthly investments from your bank account so it’s a user friendly process.

Resist taking more risk after strong market gains and taking less risk (panic selling) after major market losses. Remember, it’s “buy low, sell high” not the reverse! Understand that markets peak when the economy is great and they trough when the news is bleak. Don’t let your emotions get in the way of your wealth. Think and act long term.

Avoid overly concentrating your investments in a few stocks or market segments (e.g., technology). The market has a ruthless way of humbling the overconfident investor!

As a rule of thumb, no stock should represent more than 10-15 percent of your assets. That way, if things don’t pan out, you’ll still have the other 85-90 percent working for you. (Tip: Although it may seem tempting to go for what seems popular or successful at the time, that’s not always wisest.)

Remember to diversify across different asset classes (the three main asset classes are stocks, bonds, and cash equivalents, and others include real estate and commodities) to reduce your risk and beat inflation. Too many people put all (or none) of their assets in stocks and live to regret it during market downturns they can’t handle.

After taking the above tips into consideration, remember, above all, that patience is key. Very few “get rich quick” schemes—even if they work—are sustainable for the long term. Save and invest with your END GOALS in mind.

Do you see the value in building your wealth patiently? Have you had some experiences with this (investing or otherwise) you’d like to share?

We are on the cusp of summer break, which means many teens, grads, and college students will be starting up their summer jobs. Whether they’re nannying, mowing lawns, spinning pies at the local pizza joint, or interning at a law firm, the goal is to gain real life job experience, and of course, make whatever money they can before school starts up again in the fall.

This brings us to an important point. Money. Have you equipped your teen with the financial know-how they need to succeed in the real world (and avoid major financial pit falls)? Many parents assume their kids are learning personal finance at school, but unfortunately, many schools assume the students are learning it at home! It’s a crucial topic that all too often falls through the cracks. And, guess who loses?

As your teen embarks on their summer job, use this as a launch pad to build their financial literacy. The principles of wise financial management aren’t that tough to master. You simply need to know the basics and abide by the disciplines and key principles. One way to approach it is to teach them how to avoid these eight most common financial mistakes:

failure to set goals and plan/save for major purchases (instead, many load their credit cards with debt, making their items that much more expensive)

failure to set aside an emergency fund for unforeseen expenses

spending more than you earn and failing to budget and monitor expenses (a top learning priority!)

failure to begin saving and investing for the future as soon as possible (and missing out on the compounding of money over long periods of time)

failure to appreciate how the little things can add up (e.g., eating out versus in, paying up for name brands, owning a dog or cat)

(Number 6 is an especially common pitfall among young people when working a summer job. They aren’t used to having a surplus of money in their checking account, so they go on spending sprees and end up saving much less than they could. A good rule to learn, especially at this time of life, is save first, spend on “needs” second, and IF there is money left over, enjoy some “wants.”)

This list isn’t just for young people—it’s for everyone. Periodically review how you’re doing in each of these areas, and encourage the young adults in your life to do the same. (Remember, they’re watching you, so be sure to “walk the talk!”) If we can successfully avoid these traps, we’ll ALL be in better financial shape!

There are all sorts of plans and programs and books out there to help people get out of their financial holes and step into a fresh, healthy budget plan. I’m not saying those programs don’t have value, but there is a very simple (and free) way to make sure you stay out of the red when it comes to your finances. Make sure more money is coming in than is going out, and make a conscious, organized, and concerted effort to track your spending.

When to it comes to budgeting, many find it right up there with dieting and root canals in terms of the pleasure factor (which is probably why so many people feel they always fail at it!). However, tracking your spending and disciplining yourself to live within your means and save for the future is definitely worth the effort. If budgeting is not a natural bent for you, don’t give up on the idea altogether. I promise, with just a willing attitude and some good resources to help you stay disciplined, you’ll be able to get on track with your finances.

So, what are my best tips for staying on top of your financial game?

The basic report you should complete (on at least on a quarterly basis) is a cash flow statement. This report tallies your income and expenses in several key categories. It’s the surest way to see whether you’re living within your means and where your spending may be excessive. After subtracting all of your expenses from your income, you’ll see whether your net cash flow for that period is positive or negative. Remember, the goal is positive, positive, positive!
There are many online tools to help analyze your cash flow (e.g., www.quicken.com and www.mint.com). In the past, analyzing cash flow was a lot more work—you had to save your receipts and organize them manually. But nowadays, if you use a debit card and checks for your purchases and bills, and you link your bank account to your online budgeting program, it will automatically categorize your spending and indicate where your money is going. It will even send you an email in the middle of a month to let you know if you’re over budget in a particular category (it knows if you’ve been bad or good, which is great for accountability!).

Even if it’s just a 75-cent daily newspaper or a $10 Netflix subscription or a $4 (or more!) latte as you head to work each morning, make sure you account for every single dollar you spend. That’s how you can see exactly where your money is going. You may be surprised when you look at your spending after even just a couple of weeks. The nickels and dimes add up!

Analyzing spending and developing budgets are great skills to develop in the young people in your life. For young adults just starting out, tracking their spending will help determine how much they can afford for rent/housing and a car, significant expenses each month. It will also help them get an idea of how little things here and there can add up and destroy their budget! (I’ve heard many freshly-launched young adults say they’re shocked to see how quickly money gets spent!) How much should average living expenses cost? The following are typical expenditure categories and the rough percentages each should represent:

Housing/rent (includes utilities) 30-35%

Household/personal items 20

Autos/transportation 10

Charitable giving 5-10

Savings and investments 15+ (not an expenditure per se)

Entertainment and leisure 7

Debt/loans 5

Insurance 5

Miscellaneous 3

While the above percentages are ballpark figures (and they do change through life), spending more than five percent above these levels is getting “up there,” with the exception of savings and investments and loans for new college grads. Compare actual spending to these ballpark figures, and you’ll have a good sense of whether you’re overspending in particular categories. And, take special precautions against buying too much house or car—these expenses get many people in trouble because the payments are fixed.

Wise financial planning requires knowing where your money goes—it’s as simple as that! You’ll make better financial choices, build a stronger credit rating, and develop good savings habits that help build wealth.Do you track and analyze your spending? How do you do it? Have you trained and modeled this to the young adults in your life and, if so, how? We’d love to hear your insight and experiences!

Sometimes our plans go awry and the unexpected happens. You lose your job. You take a pay cut when your employer trims the budget. You’re out of work for months recovering from surgery. Your roof leaked (or, in our case, our septic system backed up!) while you were on a long vacation. Your washer and dryer went out. You dropped your smart phone in a puddle. What will you do?
Hopefully, you’ve planned for emergencies and contingencies.
According to a 2011 survey by the National Foundation for Credit Counseling, 64% of Americans don’t have enough cash on-hand to handle a $1,000 emergency. This means that if a crisis strikes, big or small, and you DON’T have money put away for emergencies—they’re in for a world of hurt. They’ll realize the hard way that they needed a special fund for life’s unexpected lemons.
An “emergency fund” is an account set aside with money earmarked solely for high impact contingencies that inevitably surface As a rule of thumb, it contains four to six months worth of average monthly expenses (invested in safe, short-term investments) will help serve as a buffer in these unfortunate situations. During periods when the economy is weak and your job may be in jeopardy, it’s sensible to build a six to twelve-month emergency fund to give you an extra cushion. Establishing an emergency fund should be your first financial priority once you begin your career.
To determine how much you should have in your emergency fund, you should first identify what constitutes six months’ worth of normal household expenses. (Include expenses like your mortgage or rent, utilities, loans, insurance, gas, groceries, and other essentials, allowing a small amount for incidentals and entertainment, etc.)

Then, once your balance reaches six months worth of expenses, it’s hands off! You’ll need to resist the temptation to withdraw from your emergency fund for vacations, high tech toys you think you can’t live without, or any other non-emergency expenses or indulgences.
Ultimately, what an emergency fund buys you is peace of mind. When the invevitable happens, you won’t have to scramble around for the money you need and you won’t have to turn to credit cards or other debt. It’s like an insurance policy you’ll be glad you have when life throws you a big fat lemon!How have you created an emergency fund? Can you think of a time that your savings came in handy? It’s never to soon or too late to start. Do you have any other tips or advice, or creative ways you were able to save up for an emergency expense fund?

Money, money, money. Few things in life generate as much interest yet demand more responsibility. And, while money itself will not bring happiness, mismanaging it can surely ruin a person’s chances for success and cause personal and family strains. Young people who are not prepared for the responsibilities that come with managing their finances can run into major problems and often end up dropping out of college. A 2011 report by the Pew Research Center found for people ages 18 to 34 without college degrees, two thirds said they left to support their family, and 48 percent said they could not afford college. Why? One reason is that far too many college students are financially illiterate. Sadly, personal finance is not a required course for every student in every school.

As parents, you can help your children avoid some common financial derailers—not just in college, but for life.

The principles of wise financial management aren’t that tough to master. You simply need to know the basics and abide by the disciplines and key principles. It also pays to avoid these eight most common financial mistakes:

failure to set goals and plan/save for major purchases

failure to set aside an emergency fund for unforeseen expenses

spending more than you earn and failing to budget and monitor expenses

incurring significant fixed expenses relative to your income that can’t be reduced in difficult economic times (e.g., spending too much on housing and cars)

impulse buying and lack of value consciousness when shopping

failure to begin saving and investing for the future at the beginning of your career

lack of discipline and understanding of basic financial concepts

This list isn’t just for young people—everyone needs to keep these principles in mind both now and in the future. Periodically review how you’re doing in each of these areas, and encourage your young adult children to do the same. (Remember, they’re watching you, so be sure to “walk the talk!”) If we can successfully avoid these traps, we’ll ALL be in better financial shape!

When it comes to “budgeting,” many people find it right up there with dieting and root canals in terms of the pleasure factor. However, tracking your spending and disciplining yourself to live within your means and save for the future is definitely worth the effort, however unappealing it may be. If budgeting is not a natural bent for you, don’t give up on the idea altogether. You just need a willing attitude and some good resources to help you stay disciplined and on track with your finances. There are actually lots of creative ways to make budgeting work for you. It’s necessary for all of us.

The basic report you should complete (on a monthly or quarterly basis) is a cash flow statement. This report tallies your income and expenses in several key categories. It’s the surest way to see whether you’re living within your means and where your spending may be excessive. After subtracting all of your expenses from your income, you’ll see whether your net cash flow for that period is positive or negative. Remember, the goal is positive, positive, positive!

These days, there are any number of online tools that can help you analyze your cash flow (e.g., www.quicken.com and www.mint.com). In the past, analyzing cash flow was a lot more work—you had to save your receipts and organize them manually. But now, thanks to debit cards and online banking, it’s much easier. You simply link your bank account to your budgeting app or website and it will track your spending for you! You can even opt for the service to send you alerts if you are over budget in a particular category.

Set your budget. For young adults just starting out, tracking their spending will help determine how much they can afford for rent/housing and a car (significant expenses each month) and give them a general idea of a budget for each category. How much should average living expenses represent? The following are typical expenditure categories and some suggested percentages for each:

Housing/rent (includes utilities) 30-35%

Household/personal items 20

Autos/transportation 10

Charitable giving 5-10

Savings and investments 10+ (not an expenditure per se)

Entertainment and leisure 7

Debt/loans 5

Insurance 5

Miscellaneous 3

Finally, it helps to develop up-to-date cash flow statements when you’re considering buying a home or car. People especially get into trouble when they pay too much for a car or rent an apartment that’s out of their financial reach. As a result, there is little leftover for investing in the future, surprising that someone special with an unforgettable evening, or giving to charitable causes.

When you know where your money’s going, you are more likely to make wiser financial choices and develop good savings habits that can help you build wealth for your future.

Do you track and analyze your spending? How do you do it? Have you trained and modeled this to the young adults in your life and, if so, how? We’d love to hear your insight and experiences!

January is Financial Wellness Month. In honor of this special emphasis, I wanted to share some thoughts this week on avoiding poverty. Poverty can be a touchy subject, but I think it’s important to talk about the ways we can avoid it, just like any other pitfall we may encounter in life. Please pass this message on to the young people in your life. It’s one of the most important nuggets of life wisdom they’ll ever receive.

I believe every child is a masterpiece in the making. Sure, there will be some blemishes, but each of them is unique, priceless, and filled with potential. With a strong support system, excellent guidance and education, and an appreciation of their worth, value, and opportunities, they’re well positioned to fulfill their dreams. The fact is, life success also requires living strategically and avoiding choices that can derail futures. Foremost in this is avoiding poverty.

William Galston, Senior Fellow at the Brookings Institution, columnist, and former Clinton Advisor, did a hefty amount of research on the subject of poverty. Thanks to him, we are better aware of some of the chief causes of poverty. His important conclusions, based on his research findings, are surprisingly simple. Dr. Galston asserts you need to do three main things if you live in the United States to avoid poverty:

Finish high school, marry before having a child, and marry after the age of 20!

Here’s the real kicker: only 8 percent of families who do all three are poor; however, 79 percent of those who fail to do all three are poor.

These statistics are compelling and make perfect sense. Students who fail to finish high school will not have access to many well-paying careers and will not be perceived as well by employers. Those who have children before marriage (many teens and young adults) will find it that much more difficult to enter college or complete their degree due to the immense responsibility and financial demands of raising a child. Finally, those who marry before age 20 tend to have higher divorce rates and greater career and life challenges. The common thread of all three poverty causes is reduced access to attractive careers due to lack of education or life circumstances.

Words cannot express how much better our lives, the lives of our children, and our culture would be if more people simply heeded Professor Galston’s advice. These three choices won’t guarantee success, but they will help avoid some of life’s biggest derailers.

Are you surprised by the wisdom and logic of these research conclusions to avoid poverty? What are your thoughts on them? Are you as parents, teachers, and mentors sending this message to the children you guide?

Money will never make you completely happy—but mismanaging it can be a life wrecker!

Money problems are among the top reasons for divorce, alcoholism, and suicide in our country. For these, and many other reasons, it’s critical to become a wise manager of your financial resources. You should consider this one of your greatest priorities and our nation’s educators should too.

Having a positive (and growing net worth) is essential for all of us, and the good news is it’s not rocket science. Simply put, it requires two things: 1) living within your means by spending less than you make and 2) building long-term wealth through a regular savings and investment program. This will set you up for success in both the short- and long-term.

In order to generate positive cash flow, you must spend less than you make. That means conservatively estimating your income and ensuring you have a “cushion” left over after all of your spending. Trouble sets in when you either overestimate your income or underestimate your spending.

Here’s where many run into trouble on the INCOME side:

They forget that their take-home pay is roughly 60% of their gross salary (after taking into account deductions like federal and state income taxes and Social Security)

They assume that a spike in their income is the new “normal” level of earnings and ratchet up their spending accordingly.

They assume their strong investment returns in the recent past will persist.

It’s important to recognize whether your career provides a steady or volatile income. Generally speaking, the more your income is tied to sales (e.g., real estate agents) or project work (e.g., writers, architects, actors) the more it will fluctuate over time. This income pattern presents unique challenges in your financial planning because you can’t forecast the next few years based on the recent past.

Consequently, people often overestimate their future income when they just had a great year. Then, they increase their spending just when their income falls back to normal. Not good!

Don’t fall into this trap. Plan your income conservatively—it’s far better to be positively surprised than disappointed!

What are some ways you’ve learned to live within your means and generate a positive cash flow? Have you developed creative and effective ways of showing these principles to your own children or students? Share ideas and questions by commenting below; we’d love to hear from you!

Sometimes the unexpected happens. You lose your job. You have to take a pay cut when your employer faces a business downturn. Your car just died. You just got in a wreck and will be out of work for months. Your roof leaked (or, in our case, our septic system backed up!) while you were on a long vacation. What will you do?

Hopefully you’ve planned for emergencies.

According to a 2011 survey by the National Foundation for Credit Counseling, 64% of Americans don’t have enough cash on-hand to handle a $1,000 emergency. This means that if a crisis strikes, big or small, and you DON’T have money put away for emergencies—you could be in for some real stress and heartache.

An “emergency fund” is an account set aside with money earmarked solely for high impact situations that could substantially affect your wellbeing or quality of life. As a rule of thumb, a fund that contains four to six months worth of average monthly expenses (invested in safe, short-term investments) will help serve as a buffer in these unfortunate situations. During periods when the economy is weak and your job may be in jeopardy, it’s sensible to build a six to twelve-month emergency to give you an extra cushion. Establishing an emergency fund should be your first financial priority once you begin your career.

To determine how much you should have in your emergency fund, you should first identify what constitutes six months’ worth of expenses for you. Add up what you spend each month on normal household budget items and multiply by six. Make sure you include what you pay for your mortgage, utilities, loans, insurance, gas, groceries, and other essential expenses, allowing a small amount for incidentals and entertainment, etc.

Then, to avoid being tempted to spend the money you need to use to build your emergency fund, it may be helpful to set up automatic account transfers (or automatic deposits from your paycheck if your employer offers this). You’ll also need to be disciplined and NOT give into the temptation to withdraw from your emergency fund for vacations, high tech toys you think you can’t live without, or for any other non-emergency expenses or indulgences.

Ultimately, what an emergency fund buys you is peace of mind. If something comes up, you won’t have to scramble to come up with the money you need and you won’t have to turn to credit cards or other debt. It’s like an insurance policy that you’ll be glad you have when life throws you a big fat lemon!

How have you created an emergency fund? It’s never to soon or too late to start. Share your ideas, experiences, and questions with our online community; we’d be glad to hear from you. And pass our site along to a friend and suggest they subscribe; they might be thankful for it!